Sponsorship deals worth over $10 billion will be hit by the COVD-19 epidemic, some 38% of the $26 billion committed to sports and entertainment events in the US in 2020, according to a new report from IEG, the sponsorship valuation company.
Describing the virus epidemic as the “most serious challenge the sponsorship industry has faced”, the study says nearly 20,000 sports and entertainment rights holders have either cancelled or postponed events, or temporarily closed.
This has “impacted more than 120,000 active sponsorship agreements and left more than 5,000 brands needing to recoup lost value”, according to the report IEG Outlook 2020: Forecasting the Future of the Sponsorship Industry.
Industry decision makers don’t see things getting back to normal anytime soon – 52% said they estimate normality to return to sponsorship in between three to six months, while 37% said they believe the timescale would be six-plus months; an optimistic 11% forecast up to three months.
The report highlights a number of key areas of concern for sponsorship decision makers. These include: consumer comfort in attending future events, the length of downtime due to the virus and the loss of revenue and budget cuts, scheduling conflicts and job losses in the industry.
“The sponsorship market has reached the point of no return for fully capturing lost value based solely on the length of the ongoing stoppage,” Peter Laatz, global managing director, IEG, said.
“There are three likely scenarios for sponsorship reconciliation, which include value forgiveness, value forbearance and value foreclosure. We expect to see all three of these scenarios play out,” he added.
Based on feedback collated in the survey from industry decision makers, IEG says there are some clear takeaways for the future:
• sponsorship spending will decrease or be re-evaluated;
• there is no consistent standard resolving “sponsorship value gaps”;
• sponsors prefer refunds, prorated agreements, contract extensions, and risk-averse assets;
• rights holders want to provide makegoods and so hold on to revenue;
• marketers will face increased pressure to demonstrate results;
• the COVID-19 epidemic will transform the way future partnerships are designed and executed.
“In a very counterintuitive way, this global pause in sport may actually be healthy for both brands and properties in the long term – a great realignment,” commented Terence Burns, Executive Vice-President of Global Sports, Engine Shop, which collaborated on the report.
“Brands are necessarily rethinking every sport investment from a value basis, and some properties won’t make the cut. Properties will have to look beyond the previous, often antiquated grant of rights to create new and more importantly measurable, benefits for brands.”
Sourced from IEG